New Home Sales Up Sharply In October - December 4, 2013

At 10:00 A.M. (EDT), we received the latest report on the housing market when the U.S. Department of Commerce issued new residential data for the month of October. At first blush, the report was very positive, with new home sales up sharply on both a sequential and year-over-year basis.

Specifically, sales of new single-family houses in October came in at a seasonally adjusted annual rate of 444,000. That figure was 25.4% above the revised September figure and up a notable 21.6% from the prior-year figure of 365,000 units. The consensus expectation called for sales of roughly 427,000 new units.

A geographic breakdown of the new home sales data also made for a decent reading. New home sales were up 29.2%, 21.2%, and 41.5%, year to year, in the Northeast, the Midwest, and the South, respectively. Conversely, sales in the West were down 14.2% from the prior-year period, but that year-to-year setback was somewhat offset by 15.2% sequential increase in the region, which, along with the South, is a major market for new residential construction.

The latest data—another positive snapshot of this improving sector—come on the heels of last week’s encouraging report on existing home sales. Too, the Standard & Poor's/Case-Shiller home-price index showed that prices increased by 3.2% in the third quarter of 2013 and 11.2% over the last four quarters. All these factors augur well for a continued improvement in this all-important sector of the U.S. economy.

However, we would be remiss if we did not warn investors that the sector does face the uncertainty of possible higher lending rates going forward if the Federal Reserve decides to begin tapering its aggressive bond-buying program soon rather than later. Too, the nation’s stubbornly high unemployment rate (at 7.3%) remains a concern for the homebuilders. It stands to reason that an unemployed individual will likely not be in the marketplace for a new home, which for most is the biggest transaction of their lifetime. However, this is somewhat offset by data showing that the months’ supply of houses on the market was still a very reasonable 4.9 months. The much improved supply/demand balance should lead to further firming of home prices in the coming months.

All in all, the latest data on new home sales and home prices are yet another sign of a strengthening housing market. The construction and sales of new homes—though only a small fraction of the nation’s total home sales—is vital to the overall health of the U.S. economy, as each new property built usually creates an average of three jobs for a year and generates close to $100,000 in tax revenues.